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Buy or Rent in Dubai? A major dilemma…

When the human mind sets a plan, it can only anticipate and strategize based on how far ahead in the future it is willing to see. Based on this assumption the service of professional and specialised consultancy emerged in various industries. Here in Dubai, with real estate and construction contributing a significant percentage to the total GDP at 19.4% in 2000 and increased to 25% by 2005, professional real estate advisory services was vital to guide investors in making well backed decisions. With Dubai being a young and alarmingly fast booming realty market people did not know in what, for how long or when to invest or purchase property. With the market far from mature we can speculate that either buying property or renting it could prove beneficial depending on your overall total income, investment portfolio or capital liquidity in the market.
The cost of living in Dubai is constantly on the rise, be it with rents or property prices. Salary packages and the standard of living on a whole have bettered in parallel to this and the overall inflation. The tax free economy is the driving force for an increasing resident population and the free market economy is helping ensure that quality services and property are provided within this market. It is often thought that Dubai might be a bubble about to burst, but there is no proof of this, only speculations from current trends and forecasts, and even though the stock market has faced its downhill moments, we must acknowledge that this is a new market where ups and downs are inevitable until the country’s infrastructure is stabilized. As this happens the premier real estate consultancies and developers will further their success and the amateur players will be wiped out.

With this said and Dubai’s living costs rising, the topic of ‘Buy or Rent?’ has proven to be a popular topic for discussion around the dinner table. It was thought that on the completion of some of the ‘big’ projects such as the 6500 apartment units in Jumeriah Beach residence and International City, the market would slow down, but this was not the case. Instead now we eagerly anticipate next year; that when more of the projects are handed over the realty market will experience a noticeable change in its current trend. Dubai International Financial City, Dubai Free Zone, Media & Internet city are all part of the Dubai success story and these act as the convincing factors for people to invest. Also those who invested when the market was an ‘infant,’ are millionaires now. A villa on the palm for around 2 million initially is now going for a sum of 10 million!

As for the rent control, the land department has introduced a rent cap to help protect not only the tenants but also the landlords from any injustice. Now with an official increase to be disclosed in any contract, tenants can be made aware of the amount of increase to expect and landlords can guarantee that this increase be paid. However the 7% increase could be hiked up next year, and those paying rent will have to abide by it and pay up by law; or simply shift to cheaper accommodation. Due to this more people are opting to buy their own property. The average rent price for a 1 BR in localities such as Barsha, Emirates Hills, and Marina is 100K and between 230-300K for a 3 or 4 BR villa which is quite a hefty lump sum. If you wish to stay in Dubai for 6 years or more; in this case, it would be wise to look into buying property as the monthly installments for a mortgage might prove to be in close comparison to monthly rent, minus the fact that you will be applying for a mortgage and paying a 7-8% interest rate.

However residents are hesitant to buy property merely because they fear market adjustment or a slow down which means that once they purchase their property they fear losing the premium they paid for it. It’s the same ideology of buying a stock when company X is doing well by launching several high tech, high demand products for example and then a year later company X is held accountable for unethical practices, or there are no new products released and the stock value drops. This can prove to be quite a money gamble which risk adverse people will stay away from. Those who either have loose capital or firm plans to stay in the country for a long period of time can benefit by putting their money into property here needless of the chance of a value drop. Having an international property portfolio will help balance out any losses if any, that might occur in Dubai property for a certain spell of time and those planning to stay in Dubai for a long time will not be affected by a drop in their property value for a couple of years as it will eventually stabilize, if not pick up again after sometime; after all, all assets do have a depreciation value, so after 10-20 years of utilizing the property, unless it is maintained well, one should not expect to receive a significant mark-up on the initial price they paid for it, however knowing Dubai, the market value might increase based on demand for housing and influx of people during the time you wish to sell. When making a decision to buy we should also bear in mind that Dubai property is still cheaper in comparison to places such as London, Portugal, New York and Hong Kong.

Dubai is still undergoing its growth spurt. Every economy and business has its cycle to undergo and it is not a ‘bad’ thing to experience a slowdown in the market as this will bring signs of the market stabilizing not only in regard to realty but also in regard to the stock market. It will allow people to feel more secure about their investments and that they are carrying out transactions in a mature market where there is reduced risk. This does not mean that a decrease in pace in the realty industry will hit the Dubai economy on a whole. With the transportation infrastructure taking form and much money being pumped into the tourism industry, Dubai has managed to focus its efforts on several sectors to balance out any drawbacks that might occur in one. On the handing over of several major projects as mentioned earlier, there are many scenarios that can be drawn, none of which we are sure of, but on the whole there are more optimistic views that those of pessimism.

So should you buy or rent? There is no clearly defined answer to this question, it depends if you are looking at it as a long or short term investment or from an end user point of view. However, to better understand and acknowledge Dubai we need to look at its ambitious drive and potential to eventually hold its title as one of the world’s top class cities. For all those real estate stake holders, opinions make differ but Dubai’s goal remains the same and as far as we can see the rulers of this city are ensuring they stay on the path to realizing this dream… from sand to riches and from riches to glory. If this proves to be we can safely say years down the line that we were all part of history in the making.